Fundamentals of Customer Value Essay Example

ultimate goal is to eliminate mice. Despite your dedication in enhancing mousetrap technology, customers may opt for an alternative solution like getting a pet cat. To gain true insight into how customers perceive value, it is essential to concentrate on the desired outcomes they aim for when purchasing and utilizing your products. This approach enables you to comprehend the genuine nature of your business.

Lorenzo Zambrano, CEO of CEMEX, acknowledges that their primary focus is assisting customers in completing their construction projects. He highlights that no one specifically desires to purchase cement, but rather aims to construct structures such as houses, bridges, or roads. Charles Revson, the founder of Revlon, conveys a similar sentiment by emphasizing that cosmetics are produced in factories, whereas hope is sold in department stores.

CEMEX has adopted a thoughtful approach by offering community micro-loans to support construction projects and establishing a service for Mexican immigrants in the United States to send money directly to contractors selected by CEMEX for building houses in Mexico. The concept of value can be defined as the worth in usefulness or importance to the possessor. According to this definition, value is the evaluation of what is obtained in exchange for what is given. In a more precise manner, customer value can be understood as the perceived worth of the benefits received by a customer in exchange for the total cost of a product or service, while also considering alternative competitive offerings and prices.

When a customer purchases a new BMW automobile, they receive various benefits. These include performance, comfort, safety, and entertainment features of the car. Additionally, the customer also enjoys service benefits such as financing options, warranty

coverage, repair services, scheduled maintenance, and roadside assistance. Owning a BMW also grants the customer the social status of being part of an exclusive club of BMW owners.

In return, the customer invests money, time, and effort in searching for the right car and dealer, negotiating the deal, arranging for financing, and maintaining the car over its lifetime. The customer will assess the BMW’s value based on how these benefits, weighted in proportion to the importance that she places on the benefits, compare with the total costs of buying and owning the car. If value is defined by customers, you need to get inside the hearts and minds of customers to really understand value. Needless to say, this is influenced by other new cars she may have considered, the car she currently owns, as well as the alternative of taking public transportation instead of owning a car. Mohanbir Sawhney is the McCormick Tribune Professor of Technology at Northwestern University’s Kellogg.

The School of Management is where he teaches. You can contact him at [email protected]. On another note, they have created a version of QuickBooks specifically for nonprofits. A woman has become dedicated to a few customers and spends her weekends managing the finances for an organization that benefits the community.

Understanding customer problems can be best achieved by immersing oneself in the customer's experience. The Intuit example demonstrates that observing customers in their natural environments, similar to how anthropologists do, is more effective than relying on artificial settings such as focus groups and surveys. Direct observation often provides valuable insights that traditional research methods fail to capture, as customers are often unaware of their unmet needs and unexpressed

concerns. Naturally, this observational research should be complemented by quantitative research to validate these insights. Validation involves developing quantitative customer value models and refining them with data obtained directly from customers, a challenging endeavor. As Drucker highlights, determining what holds value for the customer is far from straightforward.

Quantifying value is challenging because there is a lack of understanding between us and customers, as well as a language barrier. One major obstacle in quantifying value is our insufficient understanding of customers. A prime example of this is Mattel's unsuccessful attempt to penetrate the Japanese market with Barbie dolls. Mattel couldn't comprehend why their globally renowned doll didn't immediately succeed in Japan. Through extensive qualitative research, Mattel ultimately realized that Barbie's legs were too long and her chest size too large for young Japanese girls to identify with.

In order to cater to Japanese preferences for beauty and aesthetics, Mattel altered Barbie's proportions and gave her brown eyes instead of blue. Another obstacle in measuring value arises from customers not fully comprehending their own motivations and being unable to clearly express their requirements. This can be seen in the perplexing popularity of sport utility vehicles (SUVs). Consumers assert that they choose SUVs over cars due to their perceived safety and superior handling in challenging circumstances.

Dr. Clotaire Rapaille, a psychologist who specializes in studying the motives of auto buyers, challenges the idea that customers are using rational explanations to justify their irrational behavior. He questions why any consumer with logical reasoning would choose to purchase a vehicle that has poor fuel efficiency, inability to fit into a garage, and a tendency to roll over. However, Dr. Rapaille argues that

on a deeper level rooted in primal instincts, consumers choose SUVs for their survival instincts. Their belief is that by driving a bigger and taller vehicle, they increase their chances of survival in an urban environment where everyone is attempting to collide or run them over.

To better understand customer perceptions of value, it is important to comprehend their underlying motives and emotions. Marketers often struggle to effectively communicate with customers using language that connects with them. To tackle this challenge, my colleagues and I conducted a study on the assessment of high-definition television (HDTV). We examined different attributes that customers deem significant, including the "aspect ratio." This term pertains to the rectangular shape of HDTV screens, which have a length-to-width ratio of 16:9 compared to the 4:3 ratio seen in regular TV screens.

Initially, customers did not view this characteristic as highly important. However, our perception changed once we noticed that we were using technical language. When we modified the feature description to "cinema-like wide screen," we observed notable differences in outcomes. To effectively showcase value, it is critical to comprehend that the customer is not oneself. As I frequently advise my students, the primary principle of customer research is: "I have encountered the customer, and that customer is not me!" Therefore, it is vital to develop empathy with customers by stepping into their shoes and comprehending their challenges.

Recognizing the desires, concerns, challenges, and aspirations of your clientele is a beneficial practice. Take Intuit for example, a software corporation renowned for its customer-centric methodology. One of my former students currently holds the position of product manager at Intuit, tasked with developing a specialized offering. The significance

of contextual value cannot be undermined since it is subjective and contingent upon the perspective of the individual who assesses, acquires, and utilizes the product.

Context encompasses three crucial aspects: the end user, the end-use situation, and the environment. The evaluation of value by customers relies on their unique identity, goals, and surroundings. To comprehend their desires, concerns, challenges, and aspirations, it is advantageous to invest time in immersing oneself in customers' everyday lives. Since individuals have distinct identities, objectives, and priorities regarding the benefits offered by a product or service; its value varies from customer to customer.

The concept of customer segmentation involves identifying groups of customers who have similar needs and priorities. For example, a mother may value ease of use and convenience in a camera for taking pictures of her children, while a professional photographer may prioritize image quality, resolution, and advanced controls. This highlights the idea that different people have different preferences. This is also known as "different strokes for different folks." Value is also dependent on the specific application. The outcomes that customers seek in a particular context are referred to as "value-in-use" by business marketers.

Take, for instance, a salesperson who frequently travels and requires constant communication with the home office. This individual prioritizes portability and broadband wireless connectivity, hence favoring a laptop computer instead of a desktop computer. On the other hand, within the same company, a design engineer who uses their computer for computer-aided design and works in the office daily highly favors a powerful desktop workstation. The assessment of value is influenced by the social and environmental context that surrounds customers. In industries such as movies and fashion, peer

pressure and reference groups greatly impact consumers' identification with specific products.

In business markets, a company's culture influences its preferences for products or vendors. For instance, a risk-averse company would opt to work with established vendors such as IBM, even if their products are not the top choice in the market. 4. The concept of value is multidimensional and often misunderstood in marketing. Many believe that customers solely base their product choices on superior features and functions. However, functional value (derived from a product's features and functions) is just one aspect among three dimensions of value.

Customers consider not only the practical benefits of a product but also its emotional and economic advantages when making a purchase. To fully understand customer value, it is important to consider all three aspects: functional, economic, and emotional. HP's iPAQ exemplifies this idea as a pocket PC-based PDA that offers an appealing value proposition.

HP states that the iPAQ offers a powerful processor, a bright screen, expandability, and flexibility as its advantages. These are seen as functional value attributes. However, it is crucial for HP to also prove the economic value of the iPAQ. This involves providing quantified estimations of how the device can enhance productivity for end users and application developers. Moreover, HP aims to convince customers of the emotional benefits that come with choosing a device platform supported by reputable and financially stable companies like HP and Microsoft. While functional value serves as an important starting point, it is essential to convert this into economic value. Additionally, it is necessary to go beyond the "arms race" of functional differences by creating emotional appeals that offer long-term sustainability. Ultimately, this is

vital in competing against IBM's renowned proposition: "Nobody got fired for buying IBM."

Naturally, the pharmaceutical CEO initiated the conversation by inquiring about the cost advantages of plastic bottles. In response, the plastics manufacturer, demonstrating good marketing skills, emphasized that the bottle price should not be the sole factor to consider. Firstly, he highlighted that plastic is lighter than glass, resulting in lower transportation expenses for the drug company. Secondly, he pointed out that plastic is less prone to breakage, leading to decreased losses.

Using plastic bottles would have several advantages. Firstly, it would reduce the cost of labeling as direct imprinting can be done. Secondly, being a local supplier, the plastics manufacturer can deliver more frequently in smaller quantities, resulting in decreased inventory holding cost. Additionally, plastic enables faster production line operations since it is not prone to breakage when moved swiftly on an assembly line.

This example highlights various hidden costs associated with using glass bottles that the pharmaceutical company was unaware of. These costs include breakage costs, inventory carrying costs, labeling costs, and decreased production-line efficiencies. Therefore, it is crucial to ensure that customers understand both the benefits and costs to accurately evaluate value tradeoffs.

Customers always assess value in relation to the options they have, especially the most comparable alternative. I refer to this option as the customer's "best available substitute or equivalent" (BASE). The BASE is the alternative that customers will select if they opt not to purchase from you. It is crucial to acknowledge that customers always have a BASE, regardless of whether you believe you have viable competitors.

If you don’t know your BASE, you cannot understand the perspective customers have when making

purchasing decisions, which could result in competing against the wrong rival. Customers evaluate your product against various BASEs, including the offerings of competitors. They may choose to do business with a competitor rather than with you. Another BASE could be your own product if you are selling upgrades or new versions. For example, Microsoft is highly dominant in desktop productivity software with its Office suite, which holds a market share of over 90 percent.

Microsoft, having already captured a large portion of the market, must now persuade current Office users to upgrade to its more recent editions. This entails competing against previous versions of its own products. The status quo can also be considered a viable option, as customers may choose to continue with their existing methods. Opting for inaction is always a possibility, and it is often an appealing one due to lower associated risks.

At the Kellogg School of Management, the main rival to applicants who have been accepted into our program is their current job, rather than another business school.

Understanding the competition is crucial when considering value. It helps assess how customers evaluate your value proposition. By analyzing competing alternatives, you can identify points of differentiation and prioritize them over similarities that may dilute your value proposition. Value is a trade-off, referring to the perceived worth of something in relation to the overall cost incurred by customers. This trade-off involves balancing the total benefits received against the total costs paid. To enhance customer value, you can either increase the benefits offered or reduce customer costs. It is important to note that the purchase cost of a product is just one component of the customer's

overall costs.

When considering Linux, the open-source software option, it is important to take into account the various elements that contribute to the total cost of ownership (TCO). Although the Linux server software itself is free, customers still need to undertake tasks such as software deployment, application development and integration, software support, and software maintenance. These tasks, among others, incur both monetary and nonmonetary costs. Examples of nonmonetary costs include learning costs, switching costs, training costs, searching costs, and various other cost elements.

Sometimes, customers themselves may not be aware of the hidden costs of using products. I remember a conversation between the CEO of a midsize pharmaceutical manufacturer and a supplier of plastics who was trying to get the pharmaceutical company to Defying the Limits • 109 ;;; Fundamentals of Customer Value Dimension Strategic Focus Product Mindset Product leadership – winning by launching innovative products and adding features to products. Primary demand – sell broadly to new customers. Horizontal products with limited customization. Delegate solutions design and delivery to partners. Perpetual license pricing to maximize revenue from transactions.

The customer value mindset focuses on creating and delivering superior value to customers. This is achieved by selectively targeting existing customers and offering customized vertical solutions. Collaborating with partners is done to design and deliver these solutions. The pricing strategy focuses on aligning value creation for customers and value capture for the firm. This is achieved through subscription-pricing and gain-sharing arrangements.

Customer-centric organization is structured around important customer segments or accounts, presenting a unified front to customers. There is a strong focus on consistently engaging customers and evaluating/monitoring their value. On the other hand, the Sales Organization is product-centric and

interacts with customers in various ways. Meanwhile, Marketing Operations prioritizes product launches and wide-ranging campaigns to expand their influence and shape customer perceptions.

Product revenues and product pro stability. Success Metrics include customer satisfaction, profitability, and growth. Declare success when customers experience success. Ongoing tracking and continuous improvement of the total customer experience.

Monitoring and tracking periodic surveys of customer satisfaction with products is essential. Figure 1 presents a comparison between the product mindset and the customer value mindset. The concept of value is not just a collection of models and processes but a mindset. It starts with the understanding that the primary goal of a firm is to generate value for its customers and receive fair compensation for its endeavors. As a result, every action and communication by the firm should center around its customers rather than its products.

Despite their claims of being customer-focused, few firms truly embrace a radical shift in perspective. True customer-centricity requires believing and acting on the basis that customer value is the firm's reason for existing. Changing a firm's values is necessary to offer value to customers because what the firm believes shapes its thoughts and actions, which then manifest in its offerings. Firms that adopt a value mindset think differently about their customers, create value propositions for them, employ growth strategies, organize marketing and sales, and measure and reward success. Figure 1 compares the traditional product mindset with the customer value mindset across various key aspects of the business.

In turbulent economic times, it is important to remember that value should be the guiding force for all your business endeavors. This value should be rooted in a well-defined customer value proposition.

By consistently focusing on understanding the value perception of your customers and creating offerings based on their needs, and by measuring your success in terms of the value your customers experience, you will be able to build strong and successful customer relationships. ¦ 110 • crmproject.com If you need more details about this company’s products or services, please complete the Request for Information form.

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